Grades for a major Medicare reform project

By Matthew Heimer

In the perpetual, nailing-Jell-O-to-a-wall struggle to get Medicare costs under control, many reformers have put their faith in so-called accountable-care organizations (ACOs) – teams of hospitals and doctors that coordinate their patient care and emphasize preventive medicine. The idea is that ACOs can reduce mistakes, unnecessary procedures and costly hospitalizations, while focusing on helping older patients stay well and controlling chronic diseases—all of which would save money. Last year was the first year of a three-year pilot program for a group of 32 “Pioneer ACOs” who were putting the concept into practice, and yesterday, the Centers for Medicare and Medicaid Services released a report on their 2012 performance, with results that were mixed but generally encouraging.

Can doctors improve care while cutting costs?

EdBockStock / Shutterstock.com

The 32 health systems involved in the pilot program cover more than 669,000 Medicare beneficiaries, according to the report. All 32 of the health systems showed improvements in quality of care, as measured by benchmarks that included their track records in getting patients’ blood-pressure and cholesterol levels and reducing hospital readmissions. The report also said that all 32 systems improved their patient-satisfaction ratings over 2011 levels—a benchmark that has elicited some skepticism, since some commentators have associated greater patient satisfaction with excessive use of expensive testing.

On the cost-control side of the ledger, results were less clear-cut. To create incentives for the ACOs, and to help defray some of the revenue losses that come from a treatment model that tries to cut hospital stays, Medicare’s pilot program splits any savings with the health systems – essentially paying a bonus to those that save money. Overall, 18 of the 32 Pioneer groups generated meaningful cost savings, and 13 generated big enough savings to qualify for a bonus. (The Medicare center says total savings within the pilot program were $87.6 million.) Two health systems generated what the program calls “shared losses,” meaning their costs grew too much and they’ll wind up owing a penalty payment to Medicare.

In an article in The Wall Street Journal this week, Melinda Beck analyzes the first-year report card. Beck reports that health-care analysts are relatively sanguine about the fact that not all the health systems saved money in the first year, since some of the systems are still moving their patients off of a traditional “fee for service” payment system and on to the ACO model. She also notes that another four million Medicare beneficiaries are now covered by ACO-like systems outside the Pioneer pilot program, and that the model is gaining popularity elsewhere in the health-insurance world.

Story Conversation

About Encore

Encore looks at the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities, needs and priorities of people saving for and living in retirement. Our lead blogger is editor Matthew Heimer, and frequent contributors include editor Amy Hoak, writer Catey Hill, and MarketWatch columnists Elizabeth O’Brien, Robert Powell and Andrea Coombes. Encore also features regular commentary from The Wall Street Journal retirement columnists Glenn Ruffenach and Anne Tergesen and the Director of the Center for Retirement Research at Boston College, Alicia H. Munnell.